Delisting is a financial term describing a phenomenon where alisted securityis actively removed from the exchange on which it trades. While there are many reasons behind such action, it most frequently occurs when the company for which the stock is issued fails to comply with agiven exchange's listing requirements. Most major exchanges exhibit similar delisting rules and compliance processes.
- Delisting is a term describing the process of a company becoming removed from the exchange it trades on.
- A company's stock may be delisted as the result of failing to meet the exchange's laundry list of requirements.
- The listing criteria include maintaining trading price thresholds for certain time frames, minimum revenue standards, market capitalization thresholds, and shareholder percentage requirements.
- Companies in breach of an exchange's listing mandates are initially sent non-compliance notifications affording them certain windows of time to address these issues before they're ultimately delisted.
How to Stay Listed
Listing requirements vary from one exchange to the next. For example, on the New York Stock Exchange (NYSE), if a security's price closed below $1.00 for 30 consecutive trading days, that exchange would initiate the delisting process. Furthermore, the major exchanges also impose requirements related to market capitalization, minimum shareholders' equity, and revenue outputs. From a bookkeeping perspective, public companies must stay current with paying exchanges their annual listing fees due, while dutifully covering the significant legal and compliance costs associated with listing on an exchange.
A delisted company may still trade its stock over two different platforms: the Over-the-Counter Bulletin Board (OTCBB) or the pink sheets system, although both are significantly less regulated than the major exchanges, causing many investors to shy away from investing in such equities.
What Happens to Non-Compliant Companies
A company that fails to maintain the terms imposed by the exchange on which it lists its stock receives a perfunctory non-compliance notification letter. But a company's stock is not immediately evicted from the exchange at that time. Rather, the letter serves as an invitation for the offending corporation to reply with a description of the actions it plans to take toward addressing the delinquencies in question. If the exchange accepts the terms of the remedial plan, it will monitor the company's financial progress to ensure its milestones are met in a timely manner. But if a company fails to respond within 10 business days of receiving a notification letter, the exchange would swiftly proceed with the delisting process.
Tracking Delisted Companies
Investors may track non-compliant companies by following the lists of delinquent securities regularly published by the exchanges. Wall Street watchers can likewise directly identify non-compliant companies by checking out their stock ticker symbols. If a ticker has the initials "BC" attached to the end of it, the stock is designated as non-compliant. But such companies may continue trading normally on the exchange as they cycle through their probationary periods.
FAQs
A company's stock may be delisted as the result of failing to meet the exchange's laundry list of requirements. The listing criteria include maintaining trading price thresholds for certain time frames, minimum revenue standards, market capitalization thresholds, and shareholder percentage requirements.
What are the criteria for delisting a stock? ›
If a company can't maintain the minimum requirements to remain listed, Nasdaq will delist it. Failure of a company to meet a minimum closing bid price of at least $1 for 30 consecutive trading days can trigger delisting. When this happens Nasdaq issues a deficiency notice to the company.
What is the law of delisting? ›
As per Rule 21A of the Securities Contract Regulation Act and the Securities Contract (Regulation) Rules, 1957, a company's securities will be mandatorily delisted if: The company's director has been convicted for non-compliance with the rules and regulations of the Depositories Act and SEBI Act.
What needs to happen for a stock to be delisted? ›
A company can choose to delist to go private, or it may be delisted by its host exchange for failing to meet requirements. The NYSE, shown here, may compel a stock to delist if its share price falls below $1.00 and it is unable to regain compliance within 6 months.
What can be a reason that a stock is delisted? ›
The reasons for delisting include violating regulations and failing to meet minimum financial standards. Financial standards include the ability to maintain a minimum share price, financial ratios, and sales levels.
How long can a stock stay under $1 before delisting? ›
For example, on the New York Stock Exchange (NYSE), if a security's price closed below $1.00 for 30 consecutive trading days, that exchange would initiate the delisting process.
Do I lose my money if a stock is delisted? ›
Though delisting does not affect your ownership, shares may not hold any value post-delisting. Thus, if any of the stocks that you own get delisted, it is better to sell your shares. You can either exit the market or sell it to the company when it announces buyback.
How do I sell a stock that has been delisted? ›
Although some brokerages restrict such OTC transactions, you generally can sell a delisted stock just as you would a stock that trades on an exchange. A delisted stock can continue to trade over the counter for years, even if the company files for bankruptcy.
Can a stock be delisted immediately? ›
Delisting of a company can either happen voluntarily or involuntarily. You must know that voluntary delisting doesn't necessarily devalue your shares, but compulsory delisting might decrease the value of the shares.
What happens if you sell a put and the stock gets delisted? ›
When a stock is delisted, options trading on that stock typically ceases. This means that options holders are no longer able to buy or sell their options on the open market. However, they still have the right to exercise their options if they choose to do so.
This means it's removed from a public exchange. This doesn't automatically mean that the stock in question is worth nothing, and that you can't still trade it. But delisted stocks tend to see their value drop, and in many cases, quickly.
Can a company relist after delisting? ›
Many companies can and have returned to compliance and relisted on a major exchange like the Nasdaq after delisting. To be relisted, a company has to meet all the same requirements it had to meet to be listed in the first place.
What happens if you short a stock that gets delisted? ›
A delisted short stock position will remain in your account until either the stock starts trading again or until the time the DTC removes the shares from your account. It is unknown how long it will take for the company to dissolve and for the DTC to remove the shares.
At what point does a stock get delisted? ›
Several events can put a company at risk of being delisted. These include, failing to meet a minimum closing bid price of at least $1.00 for 30 consecutive trading days, failing to maintain a specific market cap, or failing to meet myriad requirements related to trading volume, shareholders' equity, or revenue outputs.
What is the process of delisting shares? ›
Eligible shareholders receive a public announcement and a bidding form. As a shareholder, you can exit by tendering your shares, with the final price determined by the maximum offered share price. Once the specified limits are reached, the delisting is deemed successful; otherwise, the company remains listed.
Can I sell my shares if a company is delisted? ›
The corporation must honour the delisting price. If the firm has been delisted for more than a year, the shareholder might approach the company and negotiate a private sale of the shares to the promoters. This will be an off-market transaction, with the price agreed upon by the seller and buyer.
